Foreign Direct Investment Policy 2019 - Ministry of Economic Affairs Royal Government of Bhutan - Ministry of Economic ...
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Foreign Direct Investment Policy
2019
Ministry of Economic Affairs
Royal Government of Bhutan
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TABLE OF CONTENTS
1. Policy Statement 1
2. FDI Focus Areas 1
3. General Conditions 1
3.1 Sectors Open for FDI 1
3.2 Others 2
3.3 FDI in an existing domestic entity 2
3.4 FDI Company 2
3.5 Currency of investment 2
3.6 Company Incorporation 3
3.7 Licensing 3
3.8 Lock-in period 3
4. Guarantees 3
4.1 Equal treatment 3
4.2 Nationalisation and expropriation 3
4.3 Repatriation of dividend 4
4.4 Repatriation of capital 4
4.5 Freedom of disposal 4
4.6 Dispute settlement 5
4.7 Intellectual Property Rights 5
5. Operating Environment 5
5.1 Access to Convertible Currency 5
5.2 Incentives and exemptions 6
5.3 Taxation 6
5.4 Borrowing 6
5.5 Expatriate Employment 7
5.5.1 Business Establishment Phase 7
5.5.2 Business Operation Phase 7
5.5.3 Education, Health, Head Office and R&D services 7
5.6 Employment and training of Bhutanese nationals 7
5.7 Visa and permits 8
5.8 Access to land 8
56. FDI Approval 8
6.1 FDI Registration 8
6.2 FDI Business Approval 8
7. Investment Promotion 9
8. Coordination 9
9. Power to make rule 9
10. Implementation 9
11. Monitoring 9
12. Exceptions 10
13. Repeal 10
14. Review and Amendments 10
15. Definitions 10
SCHEDULE I: PRODUCTION & MANUFACTURING 12
SCHEDULE II: SERVICES 13
SCHEDULE III: SMALL SCALE ACTIVITIES 15
SCHEDULE IV: NEGATIVE LIST 16
61. Policy Statement
The nation’s long-term development is guided by the concept of maximizing Gross
National Happiness (GNH). The spirit and intent is to “maximize the happiness
of all Bhutanese and to enable them to achieve their full and innate potential as
human beings”. This is envisaged through the adoption of policies and programs that
operationalizes the nine domains of GNH namely living standards, health, education,
good governance, ecological diversity and resilience, time use, psychological
wellbeing, cultural diversity and resilience, and community vitality.
In pursuance of the above, the Royal Government first adopted the Foreign Direct
Investment (FDI) Policy in 2002. Taking cognizance of the changes in the economic
and business environment, the Policy was periodically revised. Towards making the
Policy more relevant and investor-friendly, the Royal Government hereby adopts the
FDI Policy, 2019.
2. FDI Focus Areas
The FDI shall be encouraged in areas that contribute to the following;
i) Development of green and sustainable economy;
ii) Promotion of socially responsible and ecologically friendly industries;
iii) Promotion of culturally and spiritually sensitive industries;
iv) Promotion of Brand Bhutan;
v) Creation of a knowledge society; and
vi) Diversification of economy for exports and import substitution.
3. General Conditions
Notwithstanding the specific provisions of this Policy, the following general
conditions shall apply to FDI.
3.1 Sectors Open for FDI
The Royal Government shall allow FDI in both manufacturing and service sectors
except for those as listed in the Negative List. These shall be governed by sector
specific laws, policies, standards and procedures.
The priority sector activities are listed in Schedules I & II. The minimum project
cost and the maximum foreign investors’ shareholding shall be as provided in the
schedules. These shall be fast tracked for approval and clearances.
1In addition, the Royal Government shall allow FDI in Other Activities with maximum
foreign investors’ equity of 74 % and minimum project cost of Nu 50 million and Nu
25 million for manufacturing and services respectively.
Notwithstanding the above, the Royal Government shall allow FDI in select small-
scale production and manufacturing activities to foster induction of new technology
and skills and enhance market access. The minimum project cost of these projects
shall be Nu 5 million and the maximum foreign investors’ shareholding shall be
49%.
The Ministry shall revise the schedules as and when necessary.
3.2 Others
Collaboration in different forms like technical, marketing and franchise for use
of industrial designs, patents and trademarks will be allowed with prior written
permission of the Ministry.
3.3 FDI in an existing domestic entity
FDI in an existing domestic entity shall be allowed subject to the same terms
and conditions as applicable to new entities with maximum foreign investor’s
shareholding of 74 %.
3.4 FDI Company
An FDI company shall be a business incorporated or registered in the country for the
purpose of undertaking commercial activity in which 20% or more of the equity in
the business is owned by foreign investors. An individual foreign investor shall own
a minimum of 10 % of the equity.
Notwithstanding the above, in case of foreign institutional investors, a FDI company
shall be one in which 10% or more of the equity is owned by foreign institutional
investor.
3.5 Currency of investment
FDI shall be made in convertible currency. However, investors from India may be
allowed to invest in Indian currency except for the small-scale activities listed in
schedule III. The convertible currency requirement and Indian Rupee requirement
for the establishment and operation of the business must be met from the company’s
own sources.
23.6 Company Incorporation
All FDI businesses shall incorporate under the Companies Act of Bhutan, 2016
and amendments thereto upon issuance of Foreign Direct Investment Registration
Certificate (FDIRC).
3.7 Licensing
FDI businesses shall obtain approval for the proposed business activity and a business
license prior to commencing project establishment and operations. Downstream
project of the FDI companies shall be treated as a new project and shall be governed
by terms and conditions similar to a new FDI business.
3.8 Lock-in period
The FDI Company shall retain 100% of the foreign equity invested in the company
for a minimum of three years from the date of start of commercial operations of
the FDI Business.
4. Guarantees
The Royal Government shall provide the following guarantees to the foreign
investors:
4.1 Equal treatment
Except for the specified provisions in this Policy, in the application of relevant laws,
rules and regulations in the country, foreign investment will be accorded the same
treatment as accorded to similar domestic investment.
4.2 Nationalisation and expropriation
In those cases where nationalisation, expropriation or any other measure taken
which has the effect of nationalisation and expropriation or otherwise curtailing the
rights of the foreign investor, is considered to be in the national interest, the Royal
Government guarantees that such nationalisation or expropriation will be carried out
in a non-discriminatory manner and the compensation paid will be prompt, adequate,
effective and fair, namely:
i. payment shall be made by the Royal Government promptly after the
asset is nationalized or expropriated and a commercial rate of interest
will be paid for the period between nationalisation or expropriation and
payment;
3ii. the amount paid shall reflect the market value of the investment
nationalized or expropriated immediately prior to knowledge of the
nationalisation or expropriation being publicly available; and
iii. the compensation paid shall be in either the currency in which the
investment was made or another mutually agreed convertible currency
and, in either case, will be freely transferable.
4.3 Repatriation of dividend
Foreign investors shall have the right to repatriate dividend in the currency of earnings
on the basis of self-sufficiency, namely that the cumulative net currency earnings of
the company are sufficient to cover the amount of these transactions. Net currency
earnings shall be accumulated for preceding three successive years for this purpose.
Notwithstanding the above, the following shall be permitted:
i. For service activities in the priority list, where the investment in the
project was made in convertible currency and the earnings are in
currencies other than convertible currencies, the FDI company shall be
allowed to purchase from Royal Monetary Authority (RMA) convertible
currency up to US $ 5 million per annum for repatriation of dividend by
the foreign investors.
ii. In case of FDI businesses where the investment in the project was made
in convertible currency and earnings are in Indian Rupee, the foreign
investor shall be permitted to repatriate dividend in convertible currency
with prior approval from the RMA.
Other entitlements for these transactions shall be as per the relevant provisions of the
Foreign Exchange Rules & Regulations, 2018 and amendments thereto.
4.4 Repatriation of capital
Foreign investors shall have the right to repatriate their invested capital and any
capital gains secured, in the currency of investment.
4.5 Freedom of disposal
Foreign investors shall be allowed to dispose off their investments in line with
the provisions of the Companies Act of Bhutan, 2016 and Insolvency law and
amendments thereto.
44.6 Dispute settlement
Bhutan is signatory to the Convention on Recognition and Enforcement of Foreign
Arbitral Awards (New York Convention). The investors shall have the option of
alternate dispute settlement mechanism as per Alternate Dispute Resolution Act
of Bhutan, 2013 or the option of using mutually agreed framework between the
parties.
The disputing parties shall also have the option to adjudicate the dispute before the
Royal Court of Justice of Bhutan.
4.7 Intellectual Property Rights
The Industrial Property Act, 2001 and the Copyright Act, 2001 provides the legal
framework for the protection of property rights in the country. Bhutan is a signatory
to the WIPO (World Intellectual Property Organization) Convention and a signatory
to the following international conventions and protocols:
i. Paris Convention;
ii. Madrid Agreement;
iii. Protocol to the Madrid Agreement; and
iv. Berne Convention.
5. Operating Environment
5.1 Access to Convertible Currency
Any convertible currency requirement for import of capital goods must be met out
of the FDI business. However, the Royal Government shall allow local joint venture
investor to purchase convertible currency from RMA to meet the initial capital
investment requirements in cases where the foreign investor’s equity in the project is
insufficient to meet convertible currency requirement for purchase of capital goods.
The provision shall not exceed the equity obligation of the local investor.
Upon registration of the project, FDI companies shall be required to open foreign
currency accounts with local banks. Funds must be first deposited in the foreign
currency account in the local banks and all subsequent transactions routed through
banking channel in accordance with the Foreign Exchange Rules & Regulations,
2018 and amendments thereto.
5Any convertible currency required for operational expenses shall be met through the
convertible currency earnings of the FDI business and sources as approved by the
Royal Government.
However, the Royal Government shall grant access to convertible currency for:
i. Import of raw materials as a startup support; and import of proprietary
raw materials as per the Foreign Exchange Rules & Regulations, 2018
and amendments thereto.
ii. Payment of interest and amortization on convertible currency/
permitted foreign currency loans in accordance with the Guidelines
for External Commercial Borrowings.
iii. Payment of Royalties, technical service or management fees and
charges in accordance with the respective agreement for such
payments as approved by the Royal Government of Bhutan.
iv. Remittance of remuneration in accordance with the Foreign
Exchange Rules & Regulation, 2018 and amendments thereto.
The above conditions shall apply in accessing both convertible currency and Indian
Rupee by all FDI businesses.
5.2 Incentives and exemptions
The FDI companies shall be entitled to the incentives and exemptions as provided
to similar domestic investments under the Fiscal Incentives Act of Bhutan, 2017 and
amendments thereto unless specified otherwise in this Policy.
5.3 Taxation
The Sales Tax, Customs and Excise Act, 2000, Income Tax Act, 2001, Customs Act
of Bhutan, 2017 and amendments thereto shall apply to all FDI businesses.
5.4 Borrowing
FDI company may borrow from financial institutions in the country and the debt-
equity ratio shall be as per the provisions of the RMA’s prudential regulations.
However, the investors may put in higher equity if they so desire. The company shall
be also allowed to borrow from abroad as per the External Commercial Borrowing
Guidelines.
65.5 Expatriate Employment
Recognizing the need of various skills in the different businesses, the Royal
Government shall address the requirements at different phases of the project so as to
ensure that the project does not suffer on account of lack of human resources.
5.5.1 Business Establishment Phase
The FDI businesses shall be entitled to work permits for professional and non-
professional expatriates. The company shall be entitled to five work permits as
soon as the business has been granted FDIRC. Any additional requirements shall
be permitted with due approval of the Ministry of Labour and Human Resources so
long as the requirements cannot be met from the domestic market. The work permits
shall be allocated to the business rather than to the individuals concerned and shall
be issued with validity depending upon the terms of their assignment in the country,
renewable on an annual basis, till such time the business is established.
5.5.2 Business Operation Phase
The FDI businesses shall be entitled to the required number of work permits for
professional and non-professional expatriates, if Bhutanese with requisite qualifications
and experience are not available, during the initial phase of project operations.
The FDI businesses, however, shall be required to train and employ Bhutanese and
progressively phase out expatriates to attain a ratio of 1:5 (i.e. 1 expatriate for every
5 Bhutanese employed in the business) by the 5th year of commercial operation. The
ratio shall be based on the number of regular Bhutanese employees the business has
employed and the same shall be monitored and enforced by the Ministry of Labour
and Human Resources.
5.5.3 Education, Health, Head Office and R&D services
Notwithstanding the above, FDI businesses engaged in the provision of R&D
services, operating head offices, health, education and other similar services shall be
entitled to additional permits for professional and non-professional expatriates based
on the requirement of the business. However, they shall not be allowed to employ
expatriate staff in support positions.
5.6 Employment and training of Bhutanese nationals
It is the Royal Government’s policy that Bhutanese nationals be trained and
eventually employed at all levels within the business. The FDI businesses shall
phase out expatriate workers replacing them with Bhutanese nationals.
75.7 Visa and permits
The Royal Government shall issue multiple entry visas and route permits to the
following:
i) Foreign Investor,
ii) Board of Directors of FDI company, and
iii) Expatriate workers (professional/non-professional).
Dependents of the professionals employed in the FDI Company shall be provided
dependent permits in line with Immigration Rules and Regulations, 2015 and
amendments thereto.
5.8 Access to land
Land or space for establishing FDI business shall be available based on the provisions
of the Land Act of Bhutan, 2007 and amendments thereto. Local partners shall be
allowed to capitalize freehold land as their equity contribution.
6. FDI Approval
6.1 FDI Registration
Registration of a FDI will convey the right to be treated equally to a similar citizen-
owned investment seeking to invest in the sector or activity. The issuance of a
FDIRC will not construe approval of the project proposed by the foreign investor.
Registered foreign investors will be required to seek and gain all appropriate and
necessary approvals, permits, licenses or registrations that any investor, foreign or
citizen, wishing to commence operations in Bhutan, must acquire. In seeking these
approvals, permits, licenses or registrations, the foreign investors shall be required
to produce the FDIRC.
6.2 FDI Business Approval
The Department shall approve/reject proposals falling under the Priority Sector
Activities and Small-Scale Activities whereas for the Other Activities, the authority
shall rest with the Project Approval Committee constituted within the Ministry.
Notwithstanding the above provisions, the Royal Government reserves the right to
reject any investment proposal against national interest.
87. Investment Promotion
The Royal Government shall strengthen the FDI Division, Department of Industry to
function as an investment promotion agency and to provide single window services
to FDI businesses in the country as detailed in the FDI Rules & Regulations.
8. Coordination
An FDI Facilitation Committee chaired by the Minister with representatives from
relevant agencies shall be constituted to facilitate and promote FDI.
The Royal Government shall designate “FDI Focal Offices/Officers” within each
public sector agency which has a role to play within the overall FDI regime. Through
this initiative, the Royal Government expects to introduce a “whole of government”
approach to FDI promotion and implementation as specified in the FDI Rules &
Regulations.
9. Power to make rule
The Ministry shall formulate necessary rules and regulations for the implementation
of this Policy.
10. Implementation
This Policy shall come into effect upon approval of the Royal Government and its
notification. The Ministry shall be responsible for the implementation of this Policy.
11. Monitoring
While the Ministry shall have the responsibility for overall monitoring, relevant
sectors shall monitor the FDI businesses within the framework of the MoUs
or agreements signed and their respective legislations, policies and rules and
regulations. Among others,
i. The Royal Monetary Authority shall monitor and maintain information on
foreign exchange related issues,
ii. The Ministry of Labour and Human Resources shall monitor and maintain
FDI specific information on labour and employment issues,
iii. The Ministry of Home & Cultural Affairs shall monitor and maintain
information on visas, permits and other immigration issues and
iv. The National Environment Commission Secretariat shall monitor the
compliance of the business to environmental legislations.
912. Exceptions
The Royal Government reserves the right to permit FDI under terms and conditions
that may be different from those specified herein. When such exceptions are made,
the nature of the exceptions and the rationale for making them will be made public
at the time they are granted.
13. Repeal
This Policy shall repeal the FDI Policy, 2010.
14. Review and Amendments
This Policy shall be reviewed and amended as and when deemed necessary.
15. Definitions
“Convertible Currency” means foreign currency denominated in Australian
Dollar, Canadian Dollar, Danish Kroner, Euros, Hong Kong Dollar, Japanese
Yen, Norwegian Kroner, Singapore Dollar, Swedish Kroner, Swiss Franc, United
Kingdom Pound Sterling, or United States Dollar as defined in the Foreign Exchange
Rules & Regulations, 2018 and amendments thereto.
“Currency of Investment” means the currency in which the investment was made
by the foreign investor.
“Dependent” means spouse and children below 18 years of age.
“Dependent permit” means a permit issued to the spouse and children of a
professional foreign worker by the Department of Immigration.
“Existing domestic entity” means a business entity already established and
operating in the country and fully owned by Bhutanese.
“FDI business” means a commercial activity promoted by a FDI Company.
“FDI Registration Certificate (FDIRC)” means a certificate issued by the
Department to the authorized person of FDI business based on the FDI Registration
Application Form allowing them to process their investment proposal.
“Foreign investor” means:
a. a person who is a citizen of a country other than Bhutan; or
10b. an entity which is incorporated or registered outside Bhutan.
“Foreign Institutional Investor (FII)” means entities such as pension funds,
insurance companies, saving institutions and registered/licensed investment
companies that pool together funds on behalf of others and invest those funds in a
variety of different financial instruments and asset classes.
“Ministry” means the Ministry of Economic Affairs.
“Royal Government” means the Royal Government of Bhutan.
“Work permit” means a permit approved by the Department of Labour and issued
by Department of Immigration to a foreigner permitting him/her to work in the
country.
11SCHEDULE I: PRODUCTION & MANUFACTURING
Priority List of Activities
Minimum Maximum
Sl.# Sector Project Cost Foreign Conditions/
(Nu. Mn) Investor’s Requirements
Equity (%)
1 Agro Based Production:
Ø Agro processing
Ø Bio-technology
Ø Poultry
Ø Fisheries
Ø Floriculture 20 74 None
Ø Health Food
Ø Animal Feed
Ø Bio-Fertilizer & Bio
Pesticides
Ø Meat Processing
Ø Apiculture
Ø Horticulture
Ø Dairy
2 Forest based Production 50 74 None
3 Ø Solar and wind energy Based on Alternative Renewable
Ø Other renewable energy 20 Energy Policy, 2013
4 Water based products 50 74 None
5 Pharmaceutical products 50 74 As per sector Policy
6 Other manufacturing: 50 74 None
Ø Electronics
Ø Electricals
Ø Computer hardware
Ø Building materials
12SCHEDULE II: SERVICES
Priority List of Activities
SL. Minimum Maximum
# Sector Project Foreign Condition/Requirements
Cost (Nu. Investor’s
Mn) equity (%)
1 Education: 300 74
Ø Primary Education
Ø Secondary Education As per sector Policy
Ø Higher Education
2 Health:
Ø All-inclusive specialized 200 100 As per sector Policy
hospital services “All-inclusive specialized
Ø Specialized Medical hospital services” applies
Services to hospitals providing
Ø Specialized Dental at least one procedure
Services presently referred outside
Ø Specialized Medical country and having own
Laboratory Services complete set of diagnostic
Ø Specialized Diagnostic services and laboratory
imaging services facilities.
Ø Specialized Traditional
Medical Services
3 Hotels/Resorts –Five star and 200 100 None
above
4 Infrastructure Facilities on PPP NA 100 As per the PPP Policy
model
5 Sports and recreation facilities 25 74 None
6 Wellness Centre 25 74 None
7 IT Park development 200 100 None
8 Research & Development 10 100 Established firms
employing a minimum of
5 experts
9 Head Office Services 5 100 None
10 IT/ITES As per sector Policy
Ø Inside IT Park NA 100
Ø Outside IT Park 3 100
11 Construction Services 100 74 None
12 Waste Management
Ø Recycling of domestic 25 74 None
waste
Ø Waste management
services
13SL. Minimum Maximum
# Sector Project Foreign Condition/Requirements
Cost (Nu. Investor’s
Mn) equity (%)
13 Ø Water Supply and As per sector Policy
management 25 74
Ø Urban water treatment and
supply
14 4 Star Hotels 25 74 None
15 Technical and Vocational 25 74 None
Education
16 Consultancy Services 5 74 Established firms
employing a minimum
of 5 experts and having
presence in more than two
countries or experience in
international market.
17 Financial Services As per 51 As per Financial Services
FSA Act
14SCHEDULE III
SMALL SCALE ACTIVITIES
Sl Sector Minimum Maximum Foreign
# Project Cost Investor’s Equity
(Nu. M) (%)
1 Value added Agro-based products (based on 5 49
domestic produces):
Ø Fruit and vegetable processing
Ø Food Processing
Ø Herbal and medicinal products
Ø Honey-based products
Ø Spices
Ø Confectioneries
2 Forest based Production:
Ø Value added hand-made paper products 5 49
Ø Waste wood products
Ø Bamboo products
Ø Cosmetics
Ø Essential oil products
3 Others: 5 49
Ø 1. Souvenir
Ø 2. Ceramic products
15SCHEDULE IV
NEGATIVE LIST
Sl.# Activity
1. News Media
2. Distribution services including wholesale, retail and micro trade
3. Mining for sale of minerals in primary or raw form
4. Hotel 3 star and below
5. General Health Services
6. Industries that do not meet the Certificate of Origin requirements
7. Activities in the Prohibited List of the Royal Government
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